tag:blogger.com,1999:blog-2149523431587168680.post9101964782127658045..comments2016-12-08T21:37:40.797-05:00Comments on Oddball Stocks: Why go Buffett?Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger64125tag:blogger.com,1999:blog-2149523431587168680.post-19511189801993757662014-01-04T11:22:57.116-05:002014-01-04T11:22:57.116-05:00Over what time period have you measured your perfo...Over what time period have you measured your performance? How does it compare to the S&amp;P 500 over the same time period?<br /><br />- aagoldAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-25677187927920423042013-12-08T18:13:37.334-05:002013-12-08T18:13:37.334-05:00Nice post Nate. I&#39;ve been thinking about this ...Nice post Nate. I&#39;ve been thinking about this myself. I think the flaw in your rationale is that you use market prices to validate your decisions. Let&#39;s say stock A, goes up 300% after you buy it. However, it is unprofitable, will never pay a dividend, etc. Let&#39;s say stock B, declines 75%, however it has a P/E ratio of 2 and pays a 7.5% dividend. Clearly if you tally the &quot;results&quot;, it will be obvious that the results for an investor in stock A, overall, are better. However, if you were a private business owner (ignoring market fluctuations) - clearly you would be the bigger winner in stock B.<br /><br />I think there IS actually, in many cases more value (in times when markets are high, as they are now), to buy a company with consistent earnings power (ie is consistently profitable each and every year), at let&#39;s say a 10 PE, rather than buying some net-net at let&#39;s say 50% of book, that one year might earn 5% on equity and the next lose 5%. Which stock will have better market performance is really anyone&#39;s guess. But if you&#39;re looking at the business as a private owner, surely you would rather be an investor in company A rather than company B UNLESS you can with a high degree of confidence predict for instance, that the net net will be liquidated at book value and that you will get the distribution within a certain period of time. <br /><br />Keep in mind that even when Buffett was buying cigar butts like Dempster Mill, they were control positions in which he could control and predict the liquidation of the unproductive assets of the company. If you&#39;re a passive (non-control) investor, you have no choice but to rely on management to make the (hopefully correct) decisions, hence the emphasis on management skill.<br /><br />Thoughts?Mark Cnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-87549801286350559752013-11-28T02:27:34.477-05:002013-11-28T02:27:34.477-05:00Sure Buffett are recently preaching that investors...Sure Buffett are recently preaching that investors must buy great companies at good prices and let them compound. This is an exact reason that everyone go for buffett. Equity Management Companyhttp://www.idfc.com/alternatives/private-equity/our-mandate.htmnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-82842094373672072172013-11-22T05:34:06.210-05:002013-11-22T05:34:06.210-05:00Very fascinating conversation in the comments abou...Very fascinating conversation in the comments about Buffet. I have only followed him from CNBC and skimmed through his letters. Especially the comments about his &quot;darker&quot; side were interesting. I haven&#39;t read Snowball because I have always thought that it only includes the grandfatherly stories &quot;everybody knows&quot;. Is there something else in it about his character than that? Epanoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-24294074168348160222013-11-21T13:01:12.263-05:002013-11-21T13:01:12.263-05:00I feel like Buffett&#39;s investment philosophy is...I feel like Buffett&#39;s investment philosophy is the most logical and easily replicable. A savvy businessman wants productive assets; buying cheap assets isn&#39;t good enough. All it takes is a discerning business mind that understands strategy and valuation. If you think about the market as a whole, people tend to be more attracted to businesses that generate FCF like the soup nazi (but over a longer time period).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-83705906005121637172013-11-19T21:21:06.286-05:002013-11-19T21:21:06.286-05:00There is no value investing, it is only a useful f...There is no value investing, it is only a useful fiction. Investing and speculation are fundamentally indistinguishable. At the end of the day all our activities come down somewhere on the spectrum between a sure thing and a sure loss, everything beyond that is taxidermy. We have to ask ourselves what we want out of our experience and figure out the best way to achieve it, if it can be achieved at all. NoMeanSumhttp://www.nomeansum.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-62206488692592129752013-11-19T17:10:24.867-05:002013-11-19T17:10:24.867-05:00A broader issue is simply being a &quot;survivor&q...A broader issue is simply being a &quot;survivor&quot;. I have seen tons of hotshots in investing, going back to the 1980s. Very few survive.<br /><br />On the larger stage, the survivors are all the names that you know. Investing is largely a war of attrition. <br /><br />There are strategies (or careers) that work well in a given cycle, but evaporate once the cycle is over.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-73719288526688352442013-11-19T14:12:27.071-05:002013-11-19T14:12:27.071-05:00Have you read &quot;The Warren Buffetts Next Door&...Have you read &quot;The Warren Buffetts Next Door&quot; by Matt Schifrin? His methods aren&#39;t always replicated, but aptitude and diligence can definitely mimic his returns.<br /><br />Besides his genius and exclusive focus on accumulating money, I think the big thing is he kept reinvesting his returns in more and more acquisitions, whereas most people probably would continually tap their pile for yachts, extra homes, cars, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-39132030817072337262013-11-19T14:07:44.578-05:002013-11-19T14:07:44.578-05:00Mohnish Pabrai advises &quot;replicate Buffett&quo...Mohnish Pabrai advises &quot;replicate Buffett&quot; or cloning. Buying a Phil Fisher company at a Ben Graham price is the holy grail, isn&#39;t it? So those opportunities don&#39;t come around often. Even Buffett says you only need to be right on one or two stocks, and Lynch has said it only takes 2 or three 10-baggers to make a difference. Then you can sit on your you know what, as Munger says.<br /><br />Net-nets aren&#39;t always around either, so they can be just as hard to find. Schloss and Francis Chou prove the method is still profitable, if done in a &#39;basket&#39; approach versus concentration. I have no problem with it, but it obviously takes a lot more work finding and compiling a basket of net-nets versus one or two or three compounding machines and holding on for the ride.<br /><br />Pabrai even tells the story of Munger saying if you lived in a small town and purchased the car dealership in town, owned the only McDonalds, owned the biggest office building and apartment building in town, you&#39;re done. No need to pour over Japanese net-nets!<br /><br />Buffett himself has said that you can&#39;t make &quot;big money&quot; with Graham net-nets compared to big compounders and if he had $1 million or less he&#39;d be doing probably what he did earlier in his career. So 12-15% compounding returns from net-nets are just fine, but who would be opposed to finding a handful of compounding growers that can give you 26% CAGR as Pabrai advises?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-65546948614435081282013-11-19T12:22:55.321-05:002013-11-19T12:22:55.321-05:00Interesting post.. I think the question of value v...Interesting post.. I think the question of value versus quality is actually separate from the question of a &quot;simple&quot;/quantitative approach versus one that can include qualitative analysis of individual securities. One example of a very simple approach focused on business quality would be a Greenblatt-style Magic Formula strategy, where quality is esimated from measures of return on capital with no further analysis taking place.<br /><br />Although there is good long-term evidence for even extremely simple value strategies like price/BV, the usefulness of simple metrics can become temporarily compromised if they become widely used (for example, if all low P/B stocks were indiscriminately bid up, eventually very low quality stocks like fraudulent Chinese net-nets would come to dominate a low P/B screen.)<br /><br />You mentioned the book Quantitative Value, while I enjoyed the book I think it&#39;s also a symptom of mechanical value screening becoming widely used among various &quot;quant&quot; communities, which will begin to impair the usefulness of simple screens if it continues. This is equally the case for the usefulness of simple &quot;quantitative quality&quot; strategies like the Magic Formula after its aggressive popularization with the unfortunately named &quot;You Can Be a Stock Market Genius.&quot;<br /><br />Maybe it&#39;s not a coincidence that simple quantitative value strategies have actually begun to underperform:<br /><br />http://greenbackd.com/2013/06/26/value-is-badly-lagging-glamour-the-value-premium-is-now-a-discount/Deep Value Letterhttp://deepvalue.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-30980084231766821472013-11-19T04:51:35.545-05:002013-11-19T04:51:35.545-05:00There are better options. Net income for WLP is lo...There are better options. Net income for WLP is lower now than in 2007. So.... even with the big share buybacks.... since 2007 EPS has just grown 30%. Not exactly very good....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-55833893025183464672013-11-19T01:03:41.069-05:002013-11-19T01:03:41.069-05:00Merger arbitrage lends itself to insider trading. ...Merger arbitrage lends itself to insider trading. If anything, it&#39;s the primary form of engaging in insider trading. Pairing your statement about spreads with prospective inside information, then you have 40% annualized with effectively no risk. (other than law enforcement)<br /><br />I&#39;ve done a tiny bit of arbitrage, but it likely hasn&#39;t been worth it, for the reason you highlight about spreads. Further, I have seen merger arbs collapse before, which could be very painful. <br /><br />I believe one of Ivan Boesky&#39;s pitches to raise money for his arb funds was that huge arbitrage fortunes existed, which basically nobody knew about. <br /><br />Funny enough, I believe Buffett got Scott Fetzer — one of his major homeruns — following a bid from Ivan Boesky, around the time the latter collapsed. <br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-46890603440661160562013-11-19T00:04:05.383-05:002013-11-19T00:04:05.383-05:00Arbs were a lot easier 10 years ago, let alone 30-...Arbs were a lot easier 10 years ago, let alone 30-50 years ago. The spreads of those days we can only dream about now. Arbs were so great because you could make 10% in 2-3 months (40% annualized) without any leverage... So add a little bit of leverage on deals you knew were certain of closing and you could compound your money so fast. Joshnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-35254743365877192482013-11-18T23:59:36.005-05:002013-11-18T23:59:36.005-05:00What about a company like WLP? Their share count ...What about a company like WLP? Their share count is down dramatically (at least 50%) while also buying companies for mostly cash. Their competitive situation does not look as good, but the govt isn&#39;t going to put the company out of business. Just like banks, WLP will figure out how to make money. I dream (half kidding) of one day being the only shareholder left. Joshnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-89530055664671003792013-11-18T17:43:13.711-05:002013-11-18T17:43:13.711-05:00It&#39;s very difficult to know what Buffett was d...It&#39;s very difficult to know what Buffett was doing in the 1960s and 1970s. However, I sense that a move he pulled might have been one which sunk Reliance Industries, a former insurance company. <br /><br />Buffett might have used National Indemnity, as well as numerous other insurers that he rolled up, to generate a massive amount of float, through looser underwriting standards. He then used this upfront cash to purchase stocks like the Washington Post. But later in the &#39;70s and early &#39;80s, he was running underwriting losses, from bad policies a decade earlier. <br /><br />It&#39;s hard to know if those losses were intentional: meaning he used float essentially as margin. The difference is, unlike Reliance, Buffett made hundreds of millions from his stock and bond picks. If this is true, it also saved Buffett&#39;s ass from the sinking textile mill.<br /><br />Another thing I question is whether Buffett was the &quot;Ivan Boesky&quot; of the 1960s. He had a great network in New York City, and would visit regularly and receive information. It&#39;s just assumed that this was fully legal, despite lax oversight of the day.<br /><br />The typical dialogue is that Buffett found great bargains by flipping through Moody&#39;s Manuals. This appeals to people&#39;s sensibilities, and view of him as a smart businessman. Less clear are situations like his tight relationship with the Goldman Sachs arbitrage desk in the late &#39;60s.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-46211735733840149772013-11-18T15:04:20.319-05:002013-11-18T15:04:20.319-05:00I totally agree.
There are some things about him ...I totally agree.<br /><br />There are some things about him that get lost behind his public grandfatherly persona. He is a very tough and ruthless businessman and that&#39;s something that essentially no one talks about (even Alice Schroeder stopped after a while).<br /><br />An example of that is how he bought National Indemnity. He found out that the owner (Jack Ringwalt) had some moments (&quot;15 minutes every year&quot; goes the quote from Snowball) when he went into rage and wanted to sell the business. <br /><br />Buffett had one of the company&#39;s board members to watch Jack and notify him when this 15-minute window opens. One day he received the relevant call and went immediately to the company and talked Jack into selling it to him.<br /><br />He agreed to EVERY condition Jack set for the deal, he agreed on the price, to not fire anyone, to not move the company etc. etc.<br /><br />He knew that Jack was a man that would NEVER go back on his word and when he changed his mind about selling Buffett just didn&#39;t give him any footing to cancel it.<br /><br />He deposited the money within a week and with a one page contract he essentially pushed this guy to sell him his business. If that isn&#39;t ruthlessness and manipulation I don&#39;t know what is. And he applied similar tactics to buy the Nebraska Furniture Mart, Clayton Homes and many other businesses.<br /><br />However don&#39;t get me wrong on this. Buffett didn&#39;t trick Ringwalt he just outsmarted him in the negotiation. He keeper his word about everything he promised and didn&#39;t cheat Ringwalt on anything.<br /><br />You see while he is a tough businessman and a man devoted to his own interests Buffett never did any shady dealings nor broke any law. He just is/was a very tough negotiator and made sure that every deal he made was to his own best interests. <br /><br />Can&#39;t blame him for that can we?<br />Gregory Vousvounishttp://www.blogger.com/profile/17873767963559670225noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-70237993543444675092013-11-18T14:58:48.892-05:002013-11-18T14:58:48.892-05:00I purchased Autozone at 280 $. They had stg like 1...I purchased Autozone at 280 $. They had stg like 120 millions shares 15 years ago. Now they have 34 millions shares and every quarter the number of shares go down. Im not selling Autozone if the business has some kind of problem (I understand volatility is normal in business situations). I will sell Autozone the moment I see that management is not as aggressive in buying back shares as they are now. And if u read the transcripts of earnings calls in Seeking Alpha... u will see that they are very clear about their intentions of buying back shares. I expect the company in 10 years to have 15 or 10 millions shares outstanding. Even if net income doesnt grow a lot... EPS will explode and the share will explode. <br /><br />It&#39;s not about having the ability to identify these companies. The basic rule is: Im not investing in companies that are not buying back shares aggressivily. And this is it. It&#39;s like all the guys in Seeking Alpha obsessed with dividend growth investing (not a bad strategy) but mine is more efficient and tax efficient (u can take money for living expenses through the margin account).<br /><br />check the article: carol loomis: beating the market by buying back stock<br />and check this guy in Seeking Alpha (more than 100 million investing in dividend growing companies: with a little bit of leverage and buybacks its normal to end up the same or better): mbkelly75<br /><br />I apologize for my english. my mother tongue is catalanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-37550626183564235092013-11-18T14:47:58.653-05:002013-11-18T14:47:58.653-05:00The point is simply that Buffett came of age in th...The point is simply that Buffett came of age in the world that was hospitable to him. He was very well positioned to seek opportunities. <br /><br />I&#39;m not saying that he was a Whitney or Harriman and everything was handed to him. But he had the necessary ingredients to advance in the society of his day.<br /><br />Having a father who is a U.S. Congressman was important in the society of the 1950s. Family money is more important in today&#39;s society.<br /><br />Perhaps a modern equivalent would be someone like Einhorn or Ackman. They were well positioned to advance in today&#39;s world, and started from a solid base.<br /><br />To continue with the analogy, noting Ackman and Einhorn&#39;s family financial backgrounds isn&#39;t implying that they&#39;re comparable to the Warburgs and Rothschilds. The point is that it positioned them competitively in the Wall Street of which they came of age.<br /><br />That&#39;s all I&#39;m saying about Buffett. He was positioned competitively in the 1950s and 1960s. <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-31554540713981205412013-11-18T14:39:39.589-05:002013-11-18T14:39:39.589-05:00Did you purchase Autozone back in 1991 or recently...Did you purchase Autozone back in 1991 or recently? I understand the growth stories of these things, and I&#39;ve said in the past if you can invest in an Autozone in 1991 you&#39;re much better off verses buying cheap stocks. The problem is very few people have the ability to identify these companies in advance.<br /><br />I purchased Mastercard a little over a month after the IPO, a true moat company at a cheap price. I&#39;ve hung on for dear life and done well, but I consider it luck. I would have never guessed the stock would do this well. If you look at their financials pre-IPO they weren&#39;t even consistently profitable. At the time I thought they were worth maybe $80, by the time they reached $80 their results had improved, I just continued to hold.Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-2857519693191332532013-11-18T14:35:04.615-05:002013-11-18T14:35:04.615-05:00Autozone... for example... started trading in 1991...Autozone... for example... started trading in 1991... the share price has multiplied by 50 more or less. This is more or less 20% per year (because EPS have grown more or less 20% per year). Using a little bit of leverage u go to 25 or 30% per year. I think it&#39;s much better than investing in cheap companies with problems.<br /><br />And right now Autozone is not extremely expensive (P/E is 16). Check also O&#39;reilly automotive, Fossil, Mastercard, Union Pacific Corporation, Express Scripts.... <br /><br />I invest in companies that: 1- are buying back shares in an aggressive way. 2- growing EPS consistently more than 10 % per year. 3- I understand the competitve situation.<br /><br />I have looked the financial statements of the 4000 companies trades in the US... and there are very few companies that meet my rules. But with 5 or 10 companies.... it&#39;s enough.... to get ridicously richAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-10490462763875366782013-11-18T14:15:40.067-05:002013-11-18T14:15:40.067-05:00Buffett was very, very focused. Based on my short ...Buffett was very, very focused. Based on my short impression of him, his personality struck me as similar to Hank Greenberg of AIG: no nonsense, tough, driven. I guess this shouldn&#39;t be a surprise, since both men are in the same industry. <br /><br />No one will doubt Buffett&#39;s sharp mind, especially at his age, but he also seemed like a fairly sour and dark man. This aspect about him seems eerie, and I suspect most people only piece together over time. He creates sort of a cognitive dissonance effect, which people seem to rationalize in different ways.<br /><br />Alice Schroeder, I believe, has had second thoughts about him since having some distance. She made a comment like &quot;you don&#39;t become worth $40 billion by being Mr. Magoo&quot;. <br /><br />I don&#39;t think anyone really knows how Buffett got as rich as he did. His real money came out of the 1960s and 1970s. He went into the period being a miser with stock-picking skills, and a substantial personal savings. But he came out a tycoon…<br /><br />By the late &#39;70s, I believe he was worth hundreds of millions, and his trajectory was basically set. The 1982 to 2007 bull market would&#39;ve made him a multi-billionaire anyways, if he simply earned the S&amp;P return and reinvested all his profits.<br /><br />The important questions are what Buffett was doing in the 1960s and 1970s, and realistically, there&#39;s not much information on it. <br /><br />The book &quot;Damn Right&quot; has a decent picture. Munger did deals like tax shelters on oil wells, leveraged real estate development, working from the stock exchange — lots that is a departure from the typical storyline. While this isn&#39;t Buffett personally, the implication is that they were much more aggressive in their younger days.<br /><br />Buffett&#39;s partnership days are vague and secretive. The details of his arbitrage approach are vague or unknown. His insurance roll-up days are vague and forgotten. But those are the main areas where his money came from...<br /><br />I once heard George Roberts of KKR say that &quot;Buffett has warts&quot;, without specifying more. People respect Buffett, or fear him, but will never really say anything.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-9573312676762700582013-11-18T10:25:19.801-05:002013-11-18T10:25:19.801-05:00You are honest with yourself and know your persona...You are honest with yourself and know your personality, so you found something that fit. I have no disagreement with that. But you also aren&#39;t out trying to best Buffett either.<br /><br />Microcaps are unique in that any attention they get can unlock value. If Sonkin, Norberg, Gabelli, or many bloggers mention a company it suddenly attracts attention. In most cases all a micro cap needs is attention for value to be realized.Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-65710504805659455522013-11-18T10:18:30.349-05:002013-11-18T10:18:30.349-05:00Really easy? If that&#39;s true where are all the...Really easy? If that&#39;s true where are all the little Buffetts running around? There are many who have emulated Graham&#39;s success by investing just like him, but where are all the mini-Buffetts who have done just as well or better?<br /><br />I agree that a lot of his success can be attributed to being in the right place at the right time with the right temperament. Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-76932748507550522782013-11-18T10:16:50.434-05:002013-11-18T10:16:50.434-05:00It will be interesting for sure, often people won&...It will be interesting for sure, often people won&#39;t say something about the living out of respect, but those stories always have a way of coming out after their death.<br /><br />I&#39;m fascinated by your meeting with Buffett, what was it that left a strange feeling? Something he said, how he acted?<br /><br />I think many people&#39;s impressions of him are clouded by their worship of him, he&#39;s just a person like anyone else.Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-91135497001055988442013-11-18T10:14:25.283-05:002013-11-18T10:14:25.283-05:00For your personality it sounds like higher quality...For your personality it sounds like higher quality companies are better. The question I&#39;d ask is how are your returns comparing with the new strategy?Nate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.com